A D A P T. A D VA N C E .
2 0 0 3
A N N U A L R E P O R T
A N D 10 K
A D A P T. A D VA N C E .
D E A R
S H A R E H O L D E R
In 20 03, your Company faced and took action on a number of challenges in
one of the most dif ficult operating environments our businesses have ever
confronted. Major challenges included dramatic raw material inflation, 30-
year lows in key markets, the economic impact from the war on terrorism and
the lingering ef fects of September 11. Our actions to address these dif ficult
realities have improved our position in the shor t term and will provide us with
even greater operating leverage as our markets improve.
Make no mistake, OMNOVA Solutions’ financial results in 2003 were disappointing. Our businesses have the
capability to generate significantly better returns. Despite the challenging environment, real progress was
made in areas that will contribute to enhancing shareholder value, including reduced costs, increased produc-
tivity, improved cash flow, lower average debt, increased share in key markets, strengthened leadership and the
introduction of many exciting, innovative products. Also in 2003, we established a new capital structure which
provides long-term financial flexibility for OMNOVA. These actions have already created momentum for stronger
results in 2004.
Performance Chemicals
Despite the challenging market conditions, our Performance Chemicals segment grew sales by over
9%. Unfortunately, this growth did not translate into higher profitability because of severe inflation
in our oil-based raw materials. Not since the 1980s have these costs remained so high for so long.
Styrene and butadiene costs hit 13- and 15-year highs, respectively, during the second quarter of
the year and remained stubbornly elevated throughout 2003. Performance Chemicals responded
to raw material inflation of $31 million during the year by aggressively implementing approxi-
mately $20 million in product pricing improvements. In 2003, the segment also drove a nearly
5% increase in productivity through our LEAN SixSigma initiatives and other operational improve-
ments. We continue to seek price and productivity improvements to further bridge the margin gap
caused by raw material inflation.
Within our paper and carpet chemicals business, we continued to expand our position in
the carpet chemicals product line as customers enthusiastically embraced new products such
as ammonia-free and moisture-resistant latexes for carpet backing. Our carpet team’s unwavering
commitment to the customer and tight alignment of technical, sales, marketing and manufacturing
activities drove this growth and serves as a model for excellence across the Company.
Continued on page 2
F I N A N C I A L H I G H L I G H T S
OMNOVA SOLUTIONS INC.
)
)
$
$
$
$
$
$
$
$
$
YEARS ENDED NOVEMBER 30,
(Dollars in millions, except per-share data) 2003 2002 2001
NET SALES
Performance Chemicals 327.0 299.4 320.9
Decorative Products 257.6 288.7 302.8
Building Products 98.0 93.1 113.3
682.6 681.2 737.0
SEGMENT OPERATING (LOSS) PROFIT
Performance Chemicals 14.5 19.9 18.8
Decorative Products (9.3 7.2 17.8
)
Building Products 3.1 (4.9 (4.5
)
Restructuring and severance (8.8 2.3 (13.7
Goodwill and indefinite lived trademark impairments (49.6 – –
Idle fixed assets, obsolete inventory and intangible asset write-offs (5.7 – –
(55.8 24.5 18.4
)
Interest expense (15.3 (8.1 (14.0
)
Corporate expenses (10.0 (9.2 (11.3
)
Restructuring and severance (.2 .3 (3.9
)
Deferred financing costs write-off (3.1 – (.1
Income tax benefit (expense) .6 (.5 4.2
(Loss) Income before cumulative effect of accounting change (83.8 7.0 (6.7
Cumulative effect of accounting change – (142.5 –
NET LOSS (83.8 (135.5 (6.7
BASIC LOSS PER SHARE
(Loss) Earnings before cumulative effect of accounting change (2.10 .18 (.17
Cumulative effect of accounting change – (3.60 –
Net Loss Per Basic Share (2.10 (3.42 (.17
DILUTED LOSS PER SHARE
(Loss) Earnings before cumulative effect of accounting change (2.10 .18 (.17
Cumulative effect of accounting change – (3.58 –
Net Loss Per Diluted Share (2.10 (3.40 (.17
OTHER DATA
Capital expenditures 8.8 11.1 19.5
Depreciation and amortization 33.7 28.8 34.3
Number of employees at year-end 2,100 2,400 2,500
Number of outstanding shares for diluted EPS (millions) 39.9 39.8 39.6
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PRO-FORMA DATA
Management believes that adjusted net (loss) income provides a more accurate basis for comparing results year-over-year. The following table reconciles the Company’s net loss to adjusted net
(loss) income:
Net Loss (83.8 (135.5 (6.7
Items added back net of tax:
Cumulative effect of accounting change – 142.5 –
Restructuring and severance 9.0 (2.4 10.8
Goodwill and indefinite lived trademark impairments 49.6 – –
Idle fixed assets, obsolete inventory and intangible asset write-offs 5.7 – –
Deferred financing costs write-off 3.1 – .1
Adjusted net (loss) income (16.4 4.6 4.2
Adjusted (loss) earnings per share (.41 .12 .10
$
$
$
$
$
$
)
)
$
$
$
)
)
)
)
Certain information included in the Annual Report is forward-looking and, accordingly, involves estimates, assumptions, judgments and uncertainties. Forward-looking statements may generally be identi-
fied by the use of forward-looking terms such as “could,” “may,” “should,” “will,” “expects,” “believes,” “anticipates,” “plans,” “intends,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “likely,” “would”
or similar terms. For information regarding some of the factors that could cause actual results or outcomes to differ materially from those described in the forward-looking statements, see the Forward-
Looking Statements section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
A B O U T O M N O VA We design, develop, produce and market decorative and functional surfaces, emulsion polymers and spe-
cialty chemicals for a variety of commercial, industrial and residential end uses. Our solutions provide distinctive performance and aesthetic
attributes to products that touch people’s lives every day.
1
A D A P T. A D VA N C E .
WHY INVEST IN OMNOVA?
LE ADING POSITIONS IN
DI VERSE MARKE TS
That’s a big reason investors are attracted to OMNOVA
Solutions. Add a lean cost structure, disciplined pro-
cesses, broadening global presence, long track record of
success, strengthened management and talented associ-
ates all dedicated to increasing shareholder value, and you
have another big piece of the story. Perhaps what most
defines us is our insatiable drive to delight customers
with innovative technologies, products and services that
outperform the competition. Here are the major market
categories we serve, and a sampling of the myriad product
applications ...
SPECIALTY/
CONSTRUCTION
I N T E R I O R W A L L
A N D C E I L I N G
S Y S T E M S
F L O O R C A R E C H E M I C A L S
A N D F L O O R I N G
N O N W O V E N
C H E M I C A L S
We also grew our position as a technology leader in the paper
we have, or can develop, a competitive advantage for our customers
chemicals product line with the introduction of our advanced, high-
and OMNOVA. As a result of their good work, the segment achieved
performance technology platforms in both latex and chemical addi-
improving performance during the latter part of 2003, a trend we
tives. RohmNova, our paper chemical sales, marketing and service
expect to build on in 2004.
joint venture with Rohm and Haas, had another successful year.
Global paper producers appreciate RohmNova’s product offering,
Decorative Products
which is the broadest in the paper coatings industry, and its strong
The Decorative Products markets have been particularly hard hit
technical service and support backed by a solid commitment to
during the economic downturn, with U.S. hotel occupancy rates
technology and innovation. RohmNova continues to provide excit-
near 30-year lows, commercial office occupancies at 10-year lows,
ing opportunities for enhancing the value we bring to our global
continued slowness in office furniture sales, and a drop in manufac-
paper customers.
tured housing shipments for the fifth consecutive year.
Our specialty chemicals business had a number of wins in the
During this downturn, we have focused on right-sizing our
United States, and also in Europe where sales increased for the fifth
costs, enhancing our customer service capability and investing
consecutive year. We introduced breakthrough technologies for
in new products. Most economic forecasters are predicting im-
nonwoven applications such as disposable diapers, air and fluid
proved conditions in these markets in 2004. Strengthening market
filtration, household scrub pads and roofing mats. OMNOVA’s pro-
conditions should only increase the impact of the exciting prod-
prietary fluoropolymer, POLYFOX™, continues to generate interest
ucts we’ve introduced in the last 18 months, including SURF(x)®
in a wide variety of flow and leveling applications, including coat-
three-dimensional laminates for furniture and display fixtures,
ings, paints, floor care, surface cleaning products and electronic
ENDURION™ exceptionally cleanable coated fabrics for furnishings
chemicals. POLYFOX fluoropolymers provide improved functional
used in the health care, hospitality and commercial segments,
performance and are environmentally-preferred substitutes for
VIEWNIQUE™ full-wall murals, MEMERASE® II flexible dry-erase sur-
other fluorochemicals.
faces, MURAGLASS™ decorative films for interior glass partitions,
New products from leading technology, backed by strong
and GREENGUARD INDOOR AIR QUALITY CERTIFIED® commercial
customer and technical service, will continue to play a critical role
wallcoverings, to name a few.
in growing the Performance Chemicals segment. More than ever,
During the year, we exited the heat transfer printing product
our associates are focused on technologies and applications where
line to focus resources on our more attractive strategic businesses
2
A D A P T. A D VA N C E .
FURNITURE
AND
FURNISHINGS
COATED PAPER/
PAPERBOARD
CHEMICALS
OFFICE,
HOTEL,
HEALTHCARE
D E C O R A T I V E
L A M I N A T E S
C O A T E D
F A B R I C S
P A P E R
C O A T I N G S
W A L L C O V E R I N G S
with better long-term prospects. In addition, we enhanced our
and are potential substitutes for numerous traditional asphalt roof-
Thailand and China manufacturing joint venture capabilities in or-
ing products.
der to better serve the needs of global customers. There are grow-
At the same time, we made significant breakthroughs in im-
ing opportunities, especially in the residential furniture industry, to
proving productivity at our newest plant in Muscle Shoals, Alabama.
leverage our joint ventures to successfully compete for business
These operational improvements, along with exciting new products,
that is increasingly being produced off-shore.
certainly enhance our outlook for the future.
Robert Coleman, with over 20 years of management experi-
Harry Franze joined OMNOVA in the third quarter as President of
ence at Avery Dennison, joined OMNOVA as President of our Decora-
our Building Products segment. He brings a wealth of general man-
tive Products segment at the end of the third quarter. Bob brings
agement and operating experience and is leading a more focused
a fresh marketing and operations perspective to the business and
and integrated effort by our team to profitably grow the business.
has already begun to make critical decisions to position Decorative
Products for recovery.
Flexibility for Growth
Our productivity improvements in 2003 are clear examples of the
Building Products
power of the LEAN SixSigma operating approach we introduced dur-
Building Products achieved significantly improved performance
ing the year. Our LEAN SixSigma efforts are making fundamental
throughout 2003 as the result of better market conditions for com-
and sustainable process changes to eliminate waste (defined as
mercial roofing, exciting new products and major gains in manufac-
those things not valued by the customer) and dramatically reduce
turing productivity.
variation (typically the source of most quality problems). We spent
Severe weather last winter and an improving economy created
the first part of the year training our full-time LEAN SixSigma black-
a stronger reroofing market in the second half of the year for our
belts and identifying the improvement opportunities in each of our
GENFLEX ROOFING SYSTEMS®. In addition, we increased our empha-
businesses. As the year progressed, the blackbelts worked closely
sis on small to mid-sized contractors to broaden our customer base.
with associates on the floor, in our back office operations and in
This has opened new opportunities to demonstrate the labor and
the field to drive those changes that would add greater value to the
energy-saving qualities of our thermoplastic (TPO and PVC) roofing
customer and result in cash flow, productivity and operating profit
membrane systems. New PEEL & STICK™ TPO roofing systems intro-
improvements for OMNOVA Solutions. I could not be more excited
duced in 2003 offer significantly easier and lower-cost installation
about the power of LEAN SixSigma to have a lasting and meaningful
3
A D A P T. A D VA N C E .
CARPET
CHEMICALS
COMMERCIAL
ROOFING
TRANSPORTATION
C A R P E T B A C K I N G
B I N D E R S
S I N G L E - P LY
M E M B R A N E S Y S T E M S
M A R I N E F A B R I C S
impact on our Company. In 2003 alone – our start-up year – LEAN
performance despite very difficult operating conditions, our associ-
SixSigma efforts delivered benefits, primarily in cash flow, of nearly
ates are relentlessly focused on delighting customers. Many of
$10 million.
them have made personal sacrifices to strengthen OMNOVA for the
In last year’s report, I mentioned that we had created a new
long term. I would like to thank those associates for their hard work,
global strategic sourcing organization focused on gaining access
commitment and dedication.
to lower cost sources around the world and combining material
I assure you that OMNOVA Solutions’ associates, with the active
needs across the Company to capitalize on purchasing synergies.
involvement and guidance of our Board of Directors, are dedicated
The team made a solid first step in 2003 and, moving forward, we
to creating value for our shareholders. We emerged from 2003 a
believe there are significant additional opportunities to improve our
stronger Company – we concluded a major cost restructuring, took
quality and lower our costs through our global sourcing efforts.
aggressive product pricing actions, made leadership changes to
In Spring 2003, OMNOVA completed a $165 million, seven-year
drive better execution, enhanced the capabilities of our joint ven-
bond offering, and a $100 million bank credit facility. These actions
tures, and refinanced to improve our capital structure. We enjoy
improve the Company’s long-term financial flexibility.
leadership positions in most of the market categories we serve, and
During the year, we took the difficult but necessary actions to
we have introduced and will continue to invest in new products and
right-size our cost base. We expect this major restructuring to yield
services that offer distinct advantages to our customers.
$16 million in additional savings in 2004.
As 2003 came to a close, we were encouraged by improvement
Late in the year, we were pleased to announce the election
in the overall U.S. economy and in several of our served markets. We
of David J. D’Antoni to the Board of Directors. Dave is a Senior Vice
are optimistic that these positive economic trends will continue and
President and Group Operating Officer of Ashland Inc. His expertise
are confident in our ability to adapt and thrive in this dynamic busi-
in the chemical and building products industries adds to our already
ness landscape. We believe OMNOVA Solutions is poised to make a
strong group of independent directors.
strong advance in our performance in 2004.
A Stronger Company
OMNOVA’s future is bright because of our people. In 2003, our people
tackled a very tough set of operating challenges with enthusiasm
and commitment. United by a common cause of achieving improved
Kevin M. McMullen
Chairman and CEO
4
C O R P O R A T E I N F O R M A T I O N
EXECUTIVE OFFICERS
Kevin M. McMullen 3
Chairman, Chief Executive Officer
Common Stock
Listing:
BuyDIRECT Contact:
The Bank of New York
Kevin M. McMullen
and President,
New York Stock Exchange
Dividend Reinvestment
Chairman, Chief Executive Officer
OMNOVA Solutions Inc.
Ticker Symbol: OMN
and President
Michael E. Hicks
Senior Vice President and
Steven W. Percy 1
Former Chairman and
Chief Executive Officer,
Chief Financial Officer; Treasurer
BP America Inc.
James C. LeMay
Senior Vice President, Business
Dr. R. Byron Pipes 2,3
Goodyear Professor
Development; General Counsel
of Polymer Engineering,
University of Akron
Transfer Agent
and Registrar
The Bank of New York
Shareholder Relations
Department 11-E
P.O. Box 11258
Church Street Station
New York, NY 10286
Send certificates for transfer
and address changes to:
The Bank of New York
Receive and Deliver
Department 11-W
P.O. Box 11002
Church Street Station
New York, NY 10286
Independent Auditors
Ernst & Young LLP,
Akron, Ohio
BuyDIRECT
(A direct purchase, sale and dividend
reinvestment plan) BuyDIRECT is
available to shareholders and inter-
ested first-time investors and offers
a convenient method of increasing
investment in the Company. All
brokerage commissions and bank
Department
P.O. Box 1958
Newark, NJ 07101-9774
1-800-524-4458
Form 10-K
Additional copies available after
March 1, 2004 on the internet at
www.omnova.com or by writing to:
OMNOVA Solutions Inc.
175 Ghent Road
Fairlawn, Ohio 44333-3300
Attention: Secretary
Shareholder
Services
1-800-735-5160
Investor Relations
Contact
Michael E. Hicks
Senior Vice President and
Chief Financial Officer
330-869-4411
OMNOVA Solutions
Foundation
175 Ghent Road
Fairlawn, Ohio 44333-3300
330-869-4289
Communications
William R. Seelbach 2
President and Chief Executive Officer,
Ohio Aerospace Institute
COMMITTEES
1 Audit Committee
Chairman:
Steven W. Percy
2 Compensation and
Corporate Governance
Committee
Chairman:
David A. Daberko
3 Executive Committee
Chairman:
Kevin M. McMullen
SHAREHOLDER INFORMATION
the participants in connection with
Corporate Communications,
service fees incurred on behalf of
General inquiries, contact:
Annual Meeting
of Shareholders
March 25, 2004 at 9:00 a.m.,
Akron West Hilton Inn,
3180 West Market Street,
Fairlawn, Ohio
stock purchases and dividend rein-
330-869-4293.
vestments are paid by the Company.
Financial literature requests,
Subject to terms and conditions of
contact World Investor Link,
the plan, dividends, together with
1-888-400-7789.
optional cash investments of up
to $120,000 per year, are used to
Internet Website
buy more shares of the Company’s
www.omnova.com
Common Stock.
OMNOVA Solutions is an equal oppor-
tunity employer.
Gregory T. Troy
Senior Vice President,
Human Resources
Douglas E. Wenger
Senior Vice President and
Chief Information Officer
James J. Hohman
Vice President; President,
Paper & Carpet Chemicals
BOARD OF DIRECTORS
Edward P. Campbell 1
President and
Chief Executive Officer,
Nordson Corporation
David A. Daberko 2,3
Chairman and
Chief Executive Officer,
National City Corporation
David J. D’Antoni 2
Senior Vice President
and Group Operating Officer,
Ashland Inc.
Diane E. McGarry 1
Chief Marketing Officer,
Xerox Corporation
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Paper Stock: The cover and inside glossy pages of this report are printed on paper coated with GenFlo® latex.
Photos: Folding partition photo (page 2) courtesy of Panelfold, Inc. • Marine fabrics photo (page 4) courtesy of Formula Powerboats • Individual workstation photo (back cover, bottom square)
courtesy of The HON Company
Back Cover Photos: (left to right, top to bottom) BOLTAFLEX® coated fabrics, LANARK® commercial wallcoverings, POLYFOX™ floor care chemicals, GENFLO® paper chemicals, GENFLEX ROOFING
SYSTEMS®, GENFLO® carpet chemicals, SURF(x)® furniture laminates
Imagine
what we
can do
together.
OMNOVA SOLUTIONS INC. • 175 Ghent Road • Fairlawn, Oh 44333 • Telephone: 330-869-4200 • www.omnova.com
GREENGUARD INDOOR AIR QUALITY CERTIFIED is a registered certification mark used under license through the GREENGUARD Environmental Institute.
GENFLEX ROOFING SYSTEMS, SURF(x), MEMERASE, BOLTAFLEX, LANARK and GENFLO are registered trademarks of OMNOVA Solutions Inc.
PEEL & STICK, MURAGLASS and VIEWNIQUE are trademarks of OMNOVA Solutions Inc.
POLYFOX is a trademark used under license by OMNOVA Solutions Inc.